Pre-Paid Securities, Inc. Litigation

Commencing on or about January 17, 2001, a number of actions were filed in the Court as proposed class actions on behalf of certain persons who purchased or otherwise acquired common stock of Pre-Paid Legal Services, Inc. (“Pre-Paid”) between March 18, 1999 through May 15, 2001 inclusive (the “Class Period”) against Pre-Paid and certain of its officers and directors. By Order dated May 15, 2001, the Court (i) consolidated these actions under the above caption; (ii) appointed Lead Plaintiffs for the Class; and (iii) appointed Co-Lead Counsel for the Class.

On June 14, 2001, a Consolidated Amended Complaint (the “Complaint”) was filed. The Complaint asserted violations of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder against Pre- Paid, certain of its officers and directors, and for the first time also named Deloitte. Plaintiffs alleged that Pre-Paid, and certain of its officers and directors (collectively, the “Pre-Paid Defendants”), materially misstated Pre-Paid’s 1998, 1999, and 2000 financial statements. As against Deloitte, the Complaint alleged that Deloitte falsely represented during the Class Period that Pre-Paid’s 1998, 1999, and 2000 financial statements fairly presented Pre-Paid’s financial condition and results of operations in accordance with GAAP and allegedly falsely represented that it had audited those financial statements in accordance with GAAS. The Complaint claimed that the alleged misrepresentations and omissions caused the price of Pre-Paid stock to be artificially inflated during the Class Period, to the alleged injury and damage of the plaintiffs.

Deloitte moved to dismiss the Complaint, arguing, among other things, that Plaintiffs had not and could not plead that Deloitte acted with scienter and that the claims were barred by the statute of limitations. The Pre-Paid Defendants filed a motion to dismiss the Complaint also arguing, among other things, that scienter had not been adequately pled. By Orders dated March 5, 2002 and March 25, 2002, the Court agreed with Deloitte and the Pre-Paid Defendants and dismissed the District Court Action with prejudice.

Plaintiffs filed Notices of Appeal to the Tenth Circuit on April 2, 2002, April 23, 2002, and June 5, 2002.

The Parties have engaged in an extensive arms’-length mediation process utilizing the mandatory mediation program of the Tenth Circuit. Through that process and over the period of six months, the Parties negotiated an agreement in principle for the Parties to settle the Action with Deloitte on the terms described in detail below, subject to the approval of the Court. The Action with respect to the Pre-Paid Defendants has not been settled and is currently still the subject of an appeal to the Tenth Circuit.

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